The Federal Government's Support Of Education And For Profits - Shorts Barking Up The Wrong Tree

Much has been made -- especially recently -- about the "bubble" in education, and specifically, the bubble in student loans. Many say that ever-rising debt to support education is reaching a climax and must collapse. See here, here and here.

We will not concern ourselves with the argument of whether it is a bubble or simply an outgrowth of unemployment and a difficult economy. Instead, we want to show that the "villians" in the industry -- the for-profit players -- are no longer driving the accumulation of student debt, and thus don't deserve the ridiculous reprimanding of those that don't understand the socio-economic differences of the student populations served by the for-profit space. Yes, Steve Eisman, and Senator Harkin, we are talking about you. At one point in time you might have been right that it was the for-profits that were trailblazing the growth in student debt. That time has passed.

Collegeboard.org puts together a data series that shows total federal aid to post-secondary education. In sum, it adds up all the grants and loan guarantees that the federal government provides. This data series coincides with revenues at the for-profit entities. In short, when the for-profits book revenues, a large chunk is paid from the grants and loans provided by the government. Comparing these two data series over time shows that the for-profits aren't behind the most recent meteoric rise in student debt. Thus, the baton of blame for student debt levels should be passed on to others, specifically, all of those altruistic non-profit education entities with bloated over-paid administrations.

This graph shows the amount of federal aid (loans and grants) provided by the federal government to all institutions via students.

Here is a graph of the revenues of the for profit-operators vs the federal government's aid (loans and grants) for education.

For-Profits, after years of taking an increasing share of the federal government loan-and-grant pie, are clearly taking a smaller share.

Finally, let's look at the incremental amount of for-profit revenues vs. the federal governments education aid. In other words, relative to last year, how much of the increase in federal government aid was absorbed by the for-profit education companies ...

(Click to enlarge)

That's right, the for-profits actually are generating less revenue (and thus taking less federal government aid), even though federal aid is up $11B in 2011, or up 7%.

So, all of this means that the for-profit education players are no longer contributing to the so-called student loan "bubble". Given that for-profit companies are no longer contributing to an increase in federal aid disbursed per year, it is unlikely that regulation to limit these companies' operations or funding sources will be passed. A major catalyst for the shorts, therefore, is not likely to come about. Those shorting these companies -- because they think these companies are irresponsible and need to be regulated -- are missing the big picture and making erroneous generalities. It's time to realize that the government largesse at the core of the problem is not the fault of the for-profit education players.